1 00:00:02,920 --> 00:00:10,799 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,000 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,040 --> 00:00:18,040 Speaker 1: Eastern on Affo, Cardplay and Android Auto with the Bloomberg 4 00:00:18,079 --> 00:00:21,400 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,000 Speaker 1: or watch us live on YouTube. 6 00:00:25,120 --> 00:00:29,160 Speaker 2: IM manufacturing number, the price is paid. That's something and 7 00:00:29,280 --> 00:00:30,640 Speaker 2: jumped quite a bit in March. 8 00:00:30,720 --> 00:00:34,080 Speaker 3: Also, yeah, exactly, So I'm looking and so that data 9 00:00:34,120 --> 00:00:36,040 Speaker 3: will break it down in just moments. But I'm looking 10 00:00:36,040 --> 00:00:38,360 Speaker 3: at also the Jolts data data a little bit lower 11 00:00:38,400 --> 00:00:41,000 Speaker 3: eight point five million the consensus with like eight point 12 00:00:41,040 --> 00:00:43,800 Speaker 3: six to eight million. So the Jilt's opening has been 13 00:00:43,840 --> 00:00:45,640 Speaker 3: a little bit fewer job openings out there. 14 00:00:45,720 --> 00:00:48,640 Speaker 2: Yeah, so okay, we all brain paint the brush. We 15 00:00:48,680 --> 00:00:52,520 Speaker 2: have a slow wing ish Yes, astronomy with inflation still 16 00:00:52,680 --> 00:00:56,040 Speaker 2: ish high. Tim Feuory is the man behind the ism. 17 00:00:56,080 --> 00:00:59,360 Speaker 2: He has chaired for the Institute for Supply Management. He 18 00:00:59,400 --> 00:01:01,560 Speaker 2: breaks down all the data's force. We love giving you 19 00:01:01,600 --> 00:01:05,280 Speaker 2: this instant analysis of the data as it crosses the terminal. Tim, 20 00:01:05,319 --> 00:01:08,360 Speaker 2: always great to see you walk us through these numbers. 21 00:01:08,959 --> 00:01:10,040 Speaker 4: Now, good morning everyone. 22 00:01:10,600 --> 00:01:12,720 Speaker 5: Yeah, a little bit of a disappointment, but you know, 23 00:01:12,760 --> 00:01:15,360 Speaker 5: don't overreact to it. There's so much emotion around the 24 00:01:15,400 --> 00:01:18,160 Speaker 5: fifty point fifty one versus forty nine nine. 25 00:01:18,200 --> 00:01:20,120 Speaker 4: So we came into forty nine two. We sagged a 26 00:01:20,160 --> 00:01:20,600 Speaker 4: little bit. 27 00:01:21,160 --> 00:01:23,640 Speaker 5: The four elements that I watched for demands, three of 28 00:01:23,680 --> 00:01:25,280 Speaker 5: those weakened a little bit. 29 00:01:25,760 --> 00:01:27,360 Speaker 4: But I think this is just a bump in the road. 30 00:01:27,680 --> 00:01:31,319 Speaker 5: I believe we're still on the tract of expansion that 31 00:01:31,360 --> 00:01:34,800 Speaker 5: we started in January. On the output side, the revenue 32 00:01:34,880 --> 00:01:37,640 Speaker 5: was good. We're still destaffing, but not as much as 33 00:01:37,640 --> 00:01:39,280 Speaker 5: we were in the prior months, which I think is 34 00:01:39,280 --> 00:01:41,920 Speaker 5: the appropriate thing to do. And the big disappointment in 35 00:01:41,920 --> 00:01:45,000 Speaker 5: this month was really the input side, where the suppliers 36 00:01:45,080 --> 00:01:47,440 Speaker 5: are still delivering faster, which is a bit of a 37 00:01:47,440 --> 00:01:50,960 Speaker 5: surprise at this point, and the manufacturing inventory account is 38 00:01:51,000 --> 00:01:53,120 Speaker 5: still contracting again a surprise. 39 00:01:53,720 --> 00:01:55,920 Speaker 4: As you mentioned, Alex. The price is number. 40 00:01:55,640 --> 00:01:58,920 Speaker 5: Coming in at almost sixty one is you know, definitely 41 00:01:59,200 --> 00:02:02,000 Speaker 5: an eye opener. So dit a bit of research on that, 42 00:02:02,120 --> 00:02:04,400 Speaker 5: and it seems to be all commodity related. It's steel, 43 00:02:04,440 --> 00:02:08,840 Speaker 5: it's illuminum, it's plastics, and to some extent, crude oil driven, 44 00:02:08,919 --> 00:02:13,079 Speaker 5: petrochemical driven, but not as much as the basic foundational commodity. 45 00:02:13,200 --> 00:02:15,400 Speaker 5: So you know, I think we hit a little bit 46 00:02:15,440 --> 00:02:17,720 Speaker 5: of a bump here, but I still believe that we're 47 00:02:17,760 --> 00:02:19,080 Speaker 5: on the growth rejectory. 48 00:02:19,440 --> 00:02:22,200 Speaker 6: So, tim, do I interpret that price is paid? Again? 49 00:02:22,200 --> 00:02:24,480 Speaker 3: It came in at sixty point nine versus a consensus 50 00:02:24,480 --> 00:02:27,919 Speaker 3: of fifty five point four and number last period fifty 51 00:02:27,919 --> 00:02:31,200 Speaker 3: five point eight, So the higher prices paid, So I 52 00:02:31,240 --> 00:02:32,760 Speaker 3: take that as inflationary, right. 53 00:02:34,280 --> 00:02:36,919 Speaker 5: Well, it means that in the month people paid more, 54 00:02:36,960 --> 00:02:39,000 Speaker 5: people paid higher prices than they did in the fire. 55 00:02:39,520 --> 00:02:42,360 Speaker 5: So you could say that they're faced with higher prices 56 00:02:42,360 --> 00:02:42,880 Speaker 5: for sure. 57 00:02:43,720 --> 00:02:47,400 Speaker 2: And you mentioned him as commodity, so understood that. Okay, 58 00:02:47,480 --> 00:02:51,240 Speaker 2: commodity pressures can be transitory, but nonetheless walk us through 59 00:02:51,280 --> 00:02:55,760 Speaker 2: the inventory, production, and new order. So inventories are unchanged, 60 00:02:55,880 --> 00:02:59,320 Speaker 2: production fell and new orders fell. So is that just 61 00:02:59,520 --> 00:03:02,840 Speaker 2: that companies have restocked enough and they can hang tight 62 00:03:02,880 --> 00:03:05,200 Speaker 2: for now or is it an end demand issue? 63 00:03:05,880 --> 00:03:08,520 Speaker 5: No, they fell, but they're still expanding, so they slowed 64 00:03:08,520 --> 00:03:12,400 Speaker 5: their rate of growth. Okay, on the production side, and 65 00:03:12,440 --> 00:03:14,040 Speaker 5: we had a bit of a surprise I think last 66 00:03:14,120 --> 00:03:17,160 Speaker 5: month on the production number being so strong from something 67 00:03:17,160 --> 00:03:18,400 Speaker 5: that was slightly contracting. 68 00:03:18,440 --> 00:03:20,600 Speaker 4: I think the prior month or that flat. 69 00:03:20,880 --> 00:03:22,440 Speaker 5: So we're still expanding, but it's a bit of a 70 00:03:22,440 --> 00:03:25,480 Speaker 5: slower rate, so that's positive. On the employment side, we're 71 00:03:25,520 --> 00:03:28,040 Speaker 5: still contracting, but it is a slower rate, so we're 72 00:03:28,080 --> 00:03:30,359 Speaker 5: not letting as many people go, which I think is 73 00:03:30,400 --> 00:03:32,600 Speaker 5: appropriate too at this point. You know, at the end 74 00:03:32,600 --> 00:03:34,519 Speaker 5: of April, if the second half of the year is 75 00:03:34,520 --> 00:03:36,320 Speaker 5: going to be stronger than the first, and at some 76 00:03:36,360 --> 00:03:38,440 Speaker 5: point you got to stop letting people go. And I 77 00:03:38,480 --> 00:03:40,880 Speaker 5: think we talked about that last month, and I think 78 00:03:40,880 --> 00:03:41,720 Speaker 5: that's happening now. 79 00:03:41,800 --> 00:03:44,000 Speaker 4: So nothing unusual. On the output side. 80 00:03:44,040 --> 00:03:45,920 Speaker 5: I think I would love to see a much more 81 00:03:46,000 --> 00:03:48,760 Speaker 5: robust production number, but it just wasn't to be in April. 82 00:03:49,080 --> 00:03:52,000 Speaker 5: I remember, April's a pretty strong manufacturing month. It's really 83 00:03:52,000 --> 00:03:55,040 Speaker 5: the beginning of some pretty heavy outputs. So there's some 84 00:03:55,080 --> 00:03:57,280 Speaker 5: seasonal factors in here, but I'm not going to say 85 00:03:57,280 --> 00:03:59,240 Speaker 5: that that's the issue. I think we had a bit 86 00:03:59,280 --> 00:04:02,760 Speaker 5: of a bump. I'm still optimistic about may you know. 87 00:04:02,920 --> 00:04:05,240 Speaker 5: The pricing number is obviously concerning. We've had a couple 88 00:04:05,280 --> 00:04:08,800 Speaker 5: of months here on growth. It's foundational, which on one hand, 89 00:04:08,800 --> 00:04:11,200 Speaker 5: you could argue, Okay, that's because demand is coming back 90 00:04:11,240 --> 00:04:15,080 Speaker 5: and prices are stabilizing and in some cases growing. If 91 00:04:15,080 --> 00:04:16,919 Speaker 5: that's the case, all right, fine, but you still have 92 00:04:16,960 --> 00:04:18,200 Speaker 5: to deal with the inflation number. 93 00:04:18,800 --> 00:04:21,320 Speaker 2: Great stuff, Tim, really appreciate it. Thanks for the ins analysis. 94 00:04:21,320 --> 00:04:22,600 Speaker 2: You know you have a busy day for you, Tim 95 00:04:22,640 --> 00:04:27,240 Speaker 2: Fiory of the ISM Manufacturing team, he's the chair of 96 00:04:27,240 --> 00:04:29,680 Speaker 2: that ISM Manufacturing coming a little bit light prices pay 97 00:04:29,800 --> 00:04:33,600 Speaker 2: jumping a to over sixty. Although, Tim trying to even 98 00:04:33,600 --> 00:04:35,920 Speaker 2: it out, so you know it's a bump. Relax, make 99 00:04:36,000 --> 00:04:37,599 Speaker 2: it still be good. Let's not overreact. 100 00:04:37,680 --> 00:04:39,599 Speaker 3: Yeah, we'll play by her so again, looking for the 101 00:04:39,640 --> 00:04:43,040 Speaker 3: trend there, but a little bit of a concern there. 102 00:04:43,080 --> 00:04:43,800 Speaker 3: We'll take a look at it. 103 00:04:45,080 --> 00:04:48,960 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 104 00:04:49,040 --> 00:04:52,080 Speaker 1: weekdays at ten am Eastern on Apple car Play and 105 00:04:52,080 --> 00:04:55,000 Speaker 1: Android Auto with the Bloomberg Business app. You can also 106 00:04:55,080 --> 00:04:58,279 Speaker 1: listen live on Amazon Alexa from our flagship New York 107 00:04:58,320 --> 00:05:01,039 Speaker 1: station Just Say Alexa playing Bloomberg e. 108 00:05:02,960 --> 00:05:06,520 Speaker 3: Dennis Lockhart Joints is here, former Atlanta FED President joining 109 00:05:06,560 --> 00:05:09,800 Speaker 3: us from Atlanta. Dennis, I have to ask before we 110 00:05:09,839 --> 00:05:12,280 Speaker 3: even start, if you tell me your office is located 111 00:05:12,320 --> 00:05:14,520 Speaker 3: on Peachtree Street, I'm going to jump out the window. 112 00:05:14,760 --> 00:05:16,440 Speaker 6: Is it on a Peachtree Street? 113 00:05:17,040 --> 00:05:17,760 Speaker 7: Indeed it is. 114 00:05:17,880 --> 00:05:22,920 Speaker 8: See my current office, which is my home, is on 115 00:05:23,000 --> 00:05:28,000 Speaker 8: Peachtree Street, and it's about five or six miles north 116 00:05:28,320 --> 00:05:31,200 Speaker 8: of the Fed Office, which is also a tenth and 117 00:05:31,279 --> 00:05:31,840 Speaker 8: Peach Tree. 118 00:05:31,960 --> 00:05:32,239 Speaker 6: See. 119 00:05:32,320 --> 00:05:35,400 Speaker 3: I mean before there was Google Maps or I got 120 00:05:35,440 --> 00:05:39,400 Speaker 3: lost in Atlanta every single time because every single street 121 00:05:39,720 --> 00:05:42,159 Speaker 3: is Peachtree Road, Peachtree Street, Peachtree. 122 00:05:41,760 --> 00:05:43,520 Speaker 6: Avenue, north east, southwest. 123 00:05:43,520 --> 00:05:46,919 Speaker 7: I don't know every handle you can put on the 124 00:05:46,920 --> 00:05:48,600 Speaker 7: word peach Tree is used. 125 00:05:48,400 --> 00:05:56,200 Speaker 3: To like, yes, Peachtree, it's it's a phenomenon just specific 126 00:05:56,279 --> 00:05:58,120 Speaker 3: to Atlanta. I don't know it's I know they've got 127 00:05:58,160 --> 00:06:00,840 Speaker 3: they've got a secret code down there. Dennis, what do 128 00:06:00,920 --> 00:06:03,000 Speaker 3: we going to hear from our Federal Reserve today at 129 00:06:03,000 --> 00:06:03,960 Speaker 3: two pm wall Stree time? 130 00:06:05,839 --> 00:06:08,440 Speaker 7: Well, I think, first of all, I don't think the 131 00:06:08,520 --> 00:06:11,480 Speaker 7: statement is going to break new grounds. So I think 132 00:06:11,520 --> 00:06:16,120 Speaker 7: it's really a question of Pal's press conference. I think 133 00:06:16,279 --> 00:06:20,640 Speaker 7: he needs to kind of thread the needle here, come 134 00:06:20,760 --> 00:06:24,240 Speaker 7: off as a bit balanced. I don't think he wants 135 00:06:24,320 --> 00:06:28,919 Speaker 7: to encourage any expectation of a near term cut, meaning 136 00:06:29,000 --> 00:06:33,320 Speaker 7: at the June and July meetings. But I don't think 137 00:06:33,360 --> 00:06:37,920 Speaker 7: he also wants to abandon the idea that this year 138 00:06:38,040 --> 00:06:42,320 Speaker 7: we will see some rate cuts, and to add to that, 139 00:06:42,839 --> 00:06:47,320 Speaker 7: he probably cannot take off the table the scenario in 140 00:06:47,440 --> 00:06:50,600 Speaker 7: which there is a rate hike. So to me, he's 141 00:06:50,640 --> 00:06:55,360 Speaker 7: got to come across as balanced and measured in a 142 00:06:55,839 --> 00:06:58,679 Speaker 7: certain sense, non committal, which. 143 00:06:58,520 --> 00:07:00,800 Speaker 2: I'm sure he's going to try very hard at all 144 00:07:00,839 --> 00:07:04,160 Speaker 2: the seventeen thousand questions that ask about a hike to 145 00:07:04,320 --> 00:07:09,200 Speaker 2: do that? How in your experience, and you're taking a 146 00:07:09,240 --> 00:07:11,280 Speaker 2: look at the economy and the data that's coming in 147 00:07:11,440 --> 00:07:17,080 Speaker 2: which is showing some softness, How quickly can an economy cool? 148 00:07:17,200 --> 00:07:20,400 Speaker 2: How soft can an economy get? Knowing the data points 149 00:07:20,480 --> 00:07:21,240 Speaker 2: we have right. 150 00:07:21,160 --> 00:07:25,520 Speaker 7: Now, short of a shock of some kind of supply 151 00:07:25,680 --> 00:07:29,600 Speaker 7: shock is what we've experienced recently, I think the cooling 152 00:07:29,760 --> 00:07:35,000 Speaker 7: will be gradual, and it will you know, it will 153 00:07:36,360 --> 00:07:41,000 Speaker 7: be in a way fighting something that seems to be 154 00:07:41,200 --> 00:07:45,080 Speaker 7: fueling the current resilience in the economy, and that is 155 00:07:45,240 --> 00:07:48,400 Speaker 7: that we have a very good employment economy. When people 156 00:07:48,480 --> 00:07:53,360 Speaker 7: are employed, they tend to have confidence in their income stream, 157 00:07:54,000 --> 00:07:58,080 Speaker 7: and consequently they tend to consume. And that's what's as 158 00:07:58,200 --> 00:08:02,160 Speaker 7: simplistically at least, that's what's driving the current strength of 159 00:08:02,240 --> 00:08:05,680 Speaker 7: the economy, so we're gonna have to see some consumption 160 00:08:05,960 --> 00:08:08,920 Speaker 7: slow down, which so far we really haven't seen a 161 00:08:09,000 --> 00:08:09,360 Speaker 7: lot of. 162 00:08:10,760 --> 00:08:12,920 Speaker 3: Dennis, there are some folks out there that are making 163 00:08:12,960 --> 00:08:15,840 Speaker 3: the argument that the Fed pivot, if you will, in 164 00:08:15,920 --> 00:08:19,400 Speaker 3: December to a more caution more dubbish tone that actually 165 00:08:19,480 --> 00:08:21,800 Speaker 3: contributed to some of the inflation we're seeing here in 166 00:08:21,840 --> 00:08:23,280 Speaker 3: the first quarter of twenty twenty four. 167 00:08:23,800 --> 00:08:28,840 Speaker 7: Do you buy that, well, inflation expectations have risen a 168 00:08:28,880 --> 00:08:32,280 Speaker 7: little bit. That's always a red flag for the Committee. 169 00:08:32,320 --> 00:08:38,840 Speaker 7: They get concerned when they see expectations rising, and we've seen. 170 00:08:38,679 --> 00:08:40,400 Speaker 1: That happen. 171 00:08:42,160 --> 00:08:46,560 Speaker 7: That on balance, you know, should be a cautionary note, 172 00:08:47,760 --> 00:08:52,559 Speaker 7: and you know that means they're going to maintain their 173 00:08:52,760 --> 00:08:58,319 Speaker 7: posture of I would say slight hawkishness in these circumstances. 174 00:08:59,440 --> 00:09:01,040 Speaker 2: To build on that point, I mean, you look at 175 00:09:01,040 --> 00:09:04,160 Speaker 2: financial conditions Index like it's not tight. So when the 176 00:09:04,200 --> 00:09:09,840 Speaker 2: Fed says things like we think that we're restrictive enough policy, 177 00:09:10,559 --> 00:09:11,520 Speaker 2: why do they think that? 178 00:09:13,080 --> 00:09:16,040 Speaker 7: I have a very good question. It may very well 179 00:09:16,280 --> 00:09:22,199 Speaker 7: be a question that they're reconsidering. I think, you know, 180 00:09:22,640 --> 00:09:27,439 Speaker 7: we just we've seen the economy tolerate this level of 181 00:09:27,559 --> 00:09:33,240 Speaker 7: interest rates with apparently very little problem. The economy continues 182 00:09:33,360 --> 00:09:38,640 Speaker 7: to move along very robustly even with the current setting 183 00:09:38,720 --> 00:09:44,080 Speaker 7: of policy. So it wouldn't surprise me at all if individuals, 184 00:09:44,120 --> 00:09:47,959 Speaker 7: at least in their fedspeak after the meeting, say that 185 00:09:48,120 --> 00:09:52,079 Speaker 7: they're not so sure that the setting of policy is 186 00:09:53,440 --> 00:09:56,800 Speaker 7: as restrictive as they thought. Now, one thing to keep 187 00:09:56,840 --> 00:09:59,280 Speaker 7: in mind is the ten year has moved from about 188 00:10:00,320 --> 00:10:06,600 Speaker 7: thirty ish too or sixty five to seventy, and that's tightening. 189 00:10:07,000 --> 00:10:10,880 Speaker 7: That's not tightening policy, but that's tightening financial conditions. And 190 00:10:11,120 --> 00:10:12,760 Speaker 7: we've seen that in the last few weeks. 191 00:10:12,960 --> 00:10:14,480 Speaker 2: Yeah, to be fair, I mean, this is why I 192 00:10:14,559 --> 00:10:17,040 Speaker 2: take notes, Paul, because this was an IRA Jersey thing 193 00:10:17,080 --> 00:10:19,120 Speaker 2: from yesterday and I was like, that's a brilliant question. 194 00:10:19,200 --> 00:10:20,480 Speaker 2: I'm stealing it and I'm writing it down. 195 00:10:20,559 --> 00:10:20,959 Speaker 9: So there you go. 196 00:10:21,480 --> 00:10:22,040 Speaker 2: That's why I do it. 197 00:10:23,200 --> 00:10:26,320 Speaker 6: Is there a scenario here for twenty twenty four where 198 00:10:26,320 --> 00:10:27,360 Speaker 6: there are no rate cuts? 199 00:10:28,840 --> 00:10:31,240 Speaker 7: I don't think you can you can dismiss that idea 200 00:10:31,400 --> 00:10:35,040 Speaker 7: of I don't think it's a base case at the moment, 201 00:10:35,320 --> 00:10:39,520 Speaker 7: and I don't think the Committee importantly has abandoned the 202 00:10:39,640 --> 00:10:43,559 Speaker 7: outlook or the view that they will ultimately cut rates 203 00:10:43,679 --> 00:10:47,800 Speaker 7: later in the year, but I don't think I think 204 00:10:47,880 --> 00:10:51,880 Speaker 7: it's a non zero probability that there are no rate 205 00:10:51,960 --> 00:10:52,559 Speaker 7: cuts this year. 206 00:10:54,440 --> 00:10:55,240 Speaker 10: So well off. 207 00:10:55,679 --> 00:10:57,719 Speaker 3: I mean, I guess two o'clock we'll hear from the 208 00:10:57,800 --> 00:10:59,959 Speaker 3: Fed here. I guess also that is just real quick. 209 00:11:00,679 --> 00:11:02,920 Speaker 3: A rate hike, is that something that you think will 210 00:11:02,960 --> 00:11:05,680 Speaker 3: be discussed or was discussed yesterday and today. 211 00:11:05,720 --> 00:11:14,160 Speaker 7: I think at this time they chair pal and the 212 00:11:14,200 --> 00:11:19,800 Speaker 7: committee overall probably don't want to entertain a rate hikes 213 00:11:20,120 --> 00:11:24,559 Speaker 7: as they don't want want to create the market aftermath 214 00:11:24,640 --> 00:11:27,199 Speaker 7: that would occur if there was a serious discussion of that. 215 00:11:27,840 --> 00:11:30,640 Speaker 7: But at the same time, Palell can't take it off 216 00:11:30,679 --> 00:11:33,679 Speaker 7: the table because he's got to keep I think the 217 00:11:33,760 --> 00:11:37,559 Speaker 7: committee's options open to deal with whatever develops in the 218 00:11:37,679 --> 00:11:38,280 Speaker 7: coming months. 219 00:11:38,760 --> 00:11:41,319 Speaker 2: All right, Dennis, really great perspective. Thank you so much. 220 00:11:41,400 --> 00:11:43,960 Speaker 2: As Lockhart, former Atlanta FED President, joining us from out 221 00:11:44,000 --> 00:11:46,360 Speaker 2: Peachtree Street, we decided, yeah. 222 00:11:46,240 --> 00:11:49,080 Speaker 3: So in the bio page, I mean, it's it's Peachtree 223 00:11:49,120 --> 00:11:52,280 Speaker 3: and it's p Stree Street, Peachtree Road, Peachtree Avenue, and 224 00:11:52,360 --> 00:11:57,120 Speaker 3: it's not just that northwest, southeast, northeast, and so literally 225 00:11:57,800 --> 00:11:59,559 Speaker 3: and you'd be sitting there and you give your the 226 00:11:59,640 --> 00:12:01,920 Speaker 3: capture an address, and you know, if you didn't have 227 00:12:02,000 --> 00:12:05,400 Speaker 3: it exactly perfect, he take you to a completely different 228 00:12:05,440 --> 00:12:07,920 Speaker 3: part of town, oh like forty minutes away. 229 00:12:08,440 --> 00:12:10,600 Speaker 6: I mean it was crazy. I'm like, you know he'd 230 00:12:10,640 --> 00:12:14,040 Speaker 6: be taking me somewhere. It's like, this isn't investco You're like. 231 00:12:14,320 --> 00:12:17,000 Speaker 2: This is somewhere very different the things we learn here 232 00:12:17,320 --> 00:12:18,520 Speaker 2: in Bloomberg Intelligence. 233 00:12:20,960 --> 00:12:24,800 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 234 00:12:24,920 --> 00:12:28,000 Speaker 1: weekdays at ten am Eastern on Affo, CarPlay and Android 235 00:12:28,000 --> 00:12:31,040 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 236 00:12:31,160 --> 00:12:34,320 Speaker 1: you get your podcasts, or watch us live on YouTube. 237 00:12:35,880 --> 00:12:39,640 Speaker 2: I'm Alex Steel alongside Paul Sweeneymer Live Interactive Brokers Studio 238 00:12:39,760 --> 00:12:42,600 Speaker 2: right here in midtown Manhattan. This is the Bloomberg Intelligence 239 00:12:42,720 --> 00:12:45,240 Speaker 2: radio show where we cover all the top economic and 240 00:12:45,320 --> 00:12:47,840 Speaker 2: financial news for you with a lens through a Bloomberg 241 00:12:47,920 --> 00:12:52,320 Speaker 2: Intelligence analyst. They have an amazing coverage scope two thousand companies, 242 00:12:52,360 --> 00:12:54,719 Speaker 2: one hundred and thirty industries all around the world. We 243 00:12:54,840 --> 00:12:58,400 Speaker 2: also tap our super solid lineup of external guests as well, 244 00:12:58,480 --> 00:13:00,640 Speaker 2: who really knee deep in all the data that we're 245 00:13:00,679 --> 00:13:04,040 Speaker 2: getting the latest is at ism. Manufacturing data disappointing. The 246 00:13:04,120 --> 00:13:06,719 Speaker 2: Jolts number also coming in a little bit lighter, but 247 00:13:06,800 --> 00:13:10,880 Speaker 2: yet still relatively strong. Jeffrey Cleveland is chief economist over 248 00:13:10,920 --> 00:13:14,520 Speaker 2: at Peydon Regal. He joins US now from Los Angeles. Jeffrey, 249 00:13:14,880 --> 00:13:17,480 Speaker 2: it is FED day. It is a big day. A 250 00:13:17,559 --> 00:13:20,480 Speaker 2: success for j. Powell would probably be a nothing burger. 251 00:13:20,920 --> 00:13:22,120 Speaker 2: What kind of burger do you want? 252 00:13:23,520 --> 00:13:26,120 Speaker 11: Well, okay, I was hoping for some more excitement. Actually, 253 00:13:26,200 --> 00:13:29,280 Speaker 11: happy Fed Day to you out. I mean, we're not 254 00:13:29,320 --> 00:13:31,840 Speaker 11: going to get any move on rates. I don't see 255 00:13:32,000 --> 00:13:34,080 Speaker 11: a lot of incentive for the Fed chair to try 256 00:13:34,160 --> 00:13:37,240 Speaker 11: to to try to move markets. Markets have moved towards 257 00:13:37,760 --> 00:13:41,120 Speaker 11: a more hawkish stance, removing a lot of the policy 258 00:13:41,120 --> 00:13:43,120 Speaker 11: accommodation that we saw priced in at the start of 259 00:13:43,120 --> 00:13:45,160 Speaker 11: the year. So I don't know if he needs to 260 00:13:45,200 --> 00:13:47,640 Speaker 11: do much, but I was hoping maybe just to stir 261 00:13:47,800 --> 00:13:50,280 Speaker 11: up something, we could get an announcement on the balance sheet, 262 00:13:51,200 --> 00:13:53,560 Speaker 11: so put her aside rates And they have been doing 263 00:13:53,640 --> 00:13:56,800 Speaker 11: this quantitative tightening for most of the last two years, 264 00:13:57,120 --> 00:14:00,280 Speaker 11: and they said, or at least Chair Paler said he 265 00:14:00,320 --> 00:14:05,079 Speaker 11: wanted to fairly soon begin the process of slowing the 266 00:14:05,240 --> 00:14:08,280 Speaker 11: pace of balance sheet contraction, if you can follow that. 267 00:14:08,360 --> 00:14:12,079 Speaker 11: So that could be something that's announced today to start 268 00:14:12,120 --> 00:14:14,880 Speaker 11: in June, or maybe they put that announcement off told June. 269 00:14:14,880 --> 00:14:18,240 Speaker 11: I don't know, but that's one idea for some excitement today. 270 00:14:18,760 --> 00:14:20,320 Speaker 6: So, Jeffrey, from. 271 00:14:20,120 --> 00:14:23,440 Speaker 3: Your perspective, looking at the economic data that you see, 272 00:14:23,920 --> 00:14:25,000 Speaker 3: what do you think the Fed. 273 00:14:25,200 --> 00:14:26,000 Speaker 6: Should do. 274 00:14:27,920 --> 00:14:30,080 Speaker 11: Nothing at all? I think on the funds rate, they 275 00:14:30,440 --> 00:14:34,040 Speaker 11: just sit here. Yeah, I mean, there's no compelling case 276 00:14:34,480 --> 00:14:38,240 Speaker 11: to cut interest rates at this point. That GDP report 277 00:14:38,840 --> 00:14:40,840 Speaker 11: you know last week, if you exclude some of the 278 00:14:40,920 --> 00:14:45,000 Speaker 11: volatile components, we still see the underlying pace of growth 279 00:14:45,200 --> 00:14:48,400 Speaker 11: in this country at around three percent. We think we 280 00:14:48,440 --> 00:14:50,360 Speaker 11: could get a figure like that at an annualized rate 281 00:14:50,400 --> 00:14:53,240 Speaker 11: in Q two, which would be excellent. The unemployment rates low, 282 00:14:53,760 --> 00:14:56,400 Speaker 11: all the inflation data, all the inflation data in the 283 00:14:56,480 --> 00:14:59,800 Speaker 11: first quarter picked up relative to what everyone had hoped for. 284 00:15:00,080 --> 00:15:04,240 Speaker 11: So whether we're talking CPI or PCE or ECI from 285 00:15:04,360 --> 00:15:07,480 Speaker 11: yesterday right, everything's picked up. So there's no compelling case 286 00:15:07,880 --> 00:15:09,800 Speaker 11: here to cut rates. I don't know that there would 287 00:15:09,840 --> 00:15:12,400 Speaker 11: be a it would take a few months. If I'm 288 00:15:12,440 --> 00:15:15,240 Speaker 11: a policy maker, Paul, I want to see it leans 289 00:15:15,320 --> 00:15:19,160 Speaker 11: three months of inflation data. That's much cooler than we've 290 00:15:19,160 --> 00:15:21,920 Speaker 11: been witnessing. So I think that rules out doing anything 291 00:15:22,000 --> 00:15:23,880 Speaker 11: for now. That's why I thought the balance sheet would 292 00:15:23,880 --> 00:15:25,560 Speaker 11: be something they could do with their time in the interim. 293 00:15:26,560 --> 00:15:28,960 Speaker 2: We are just talking about this in the previous segment. 294 00:15:30,120 --> 00:15:32,880 Speaker 2: Why does the Fed and do you agree that the 295 00:15:33,000 --> 00:15:36,240 Speaker 2: policy is actually restrictive enough? When you take a look 296 00:15:36,240 --> 00:15:38,760 Speaker 2: at financial conditions, they are so lose. So what gives 297 00:15:38,800 --> 00:15:41,840 Speaker 2: them the confidence to say policy is at a restrictive 298 00:15:41,960 --> 00:15:42,520 Speaker 2: enough point. 299 00:15:44,800 --> 00:15:47,240 Speaker 11: Well, there's this hypothetical thing they have where they look 300 00:15:47,280 --> 00:15:49,120 Speaker 11: at the neutral rate, they look at the policy rate 301 00:15:49,200 --> 00:15:51,440 Speaker 11: relative to that, they say, we must be we must 302 00:15:51,480 --> 00:15:54,240 Speaker 11: be at a restrictive setting. Lots of bond people will 303 00:15:54,320 --> 00:15:57,040 Speaker 11: also look at real rates. So if you look at 304 00:15:57,080 --> 00:16:00,080 Speaker 11: your tips imply your real rates, or you look a 305 00:16:00,200 --> 00:16:03,280 Speaker 11: nominal yield minus some measure of inflation, it's positive. Now 306 00:16:03,760 --> 00:16:07,160 Speaker 11: it's been negative for quite some time, so people think 307 00:16:07,240 --> 00:16:10,040 Speaker 11: that's a restrictive. I'm a simple man, so I just 308 00:16:10,120 --> 00:16:14,680 Speaker 11: look at growth, inflation, the unemployment rate, and I think 309 00:16:14,720 --> 00:16:17,720 Speaker 11: the jury is still out, Alex. It's tbd whether we're 310 00:16:17,920 --> 00:16:21,960 Speaker 11: actually that restrictive. I just got back from Europe. I 311 00:16:22,080 --> 00:16:24,040 Speaker 11: was in Germany, a lot of clients over there asking 312 00:16:24,120 --> 00:16:27,120 Speaker 11: that question, and one thing I said was, Hey, maybe 313 00:16:27,360 --> 00:16:29,840 Speaker 11: interest rates are just going to take more time to bite. 314 00:16:30,480 --> 00:16:33,120 Speaker 11: The US consumer is more insulated from rates. We've got 315 00:16:33,160 --> 00:16:36,240 Speaker 11: thirty year fixed mortgage for example. Many of my corporate clients, 316 00:16:36,360 --> 00:16:38,760 Speaker 11: you know, they've turned out their debt and they're earning 317 00:16:39,280 --> 00:16:42,920 Speaker 11: income on their assets, their savings that they've accrued, So 318 00:16:43,040 --> 00:16:45,880 Speaker 11: they're actually earning income at higher rates here. So maybe 319 00:16:45,880 --> 00:16:49,760 Speaker 11: they're more insulated from the interest rate increases that we've seen. 320 00:16:49,920 --> 00:16:52,160 Speaker 11: So the U economy is very resilient. I think it's 321 00:16:52,360 --> 00:16:54,600 Speaker 11: tough to make the case. Things are very restrictive at 322 00:16:54,640 --> 00:16:55,040 Speaker 11: the present. 323 00:16:55,600 --> 00:16:58,760 Speaker 3: Jeff we had some Jeffrey, we had some ISM data 324 00:16:58,840 --> 00:17:01,800 Speaker 3: come out earlier this morning. Forty nine point two was 325 00:17:01,840 --> 00:17:04,239 Speaker 3: a headline number versus a consensus of fifty. We had 326 00:17:04,280 --> 00:17:07,440 Speaker 3: Tim Fury, who heads up the ISM, saying he's not 327 00:17:07,600 --> 00:17:10,800 Speaker 3: too concerned about it. It's a data point. How do 328 00:17:10,880 --> 00:17:14,639 Speaker 3: you think about just kind of the overall economy here today? 329 00:17:14,760 --> 00:17:18,160 Speaker 3: Is it strong enough from your perspective that the Fed 330 00:17:18,240 --> 00:17:21,879 Speaker 3: in fact can just kind of wait, yeah, it is. 331 00:17:22,359 --> 00:17:24,240 Speaker 11: You know, I got excited when we jump back above 332 00:17:24,280 --> 00:17:27,520 Speaker 11: fifty on IC we've been lingering below that. I gotta admit, 333 00:17:27,600 --> 00:17:29,440 Speaker 11: you know, that was an exciting moment for us. We 334 00:17:29,480 --> 00:17:32,040 Speaker 11: did a chart of the week on that. But probably 335 00:17:32,080 --> 00:17:35,639 Speaker 11: the most worrisome aspect of that is m POL price 336 00:17:35,720 --> 00:17:38,159 Speaker 11: is paid. Ye correct me if I'm wrong, but I 337 00:17:38,480 --> 00:17:40,879 Speaker 11: believe they leapt back up to sixty point nine on 338 00:17:40,960 --> 00:17:45,200 Speaker 11: that gage. So again, maybe the real story here. You know, 339 00:17:45,280 --> 00:17:47,800 Speaker 11: we've had some manufacturing weakness for some time, so that's 340 00:17:47,840 --> 00:17:51,520 Speaker 11: not really new. But the resurgence of some price pressures 341 00:17:51,560 --> 00:17:53,480 Speaker 11: that might be the real story here. And that's consistent 342 00:17:53,520 --> 00:17:56,200 Speaker 11: with some other price gauges in Q one, right. 343 00:17:56,160 --> 00:17:57,960 Speaker 2: And that's something that the FED can't do anything about, 344 00:17:58,119 --> 00:18:00,240 Speaker 2: Like if that's a commodity pass through thing, if it 345 00:18:00,240 --> 00:18:02,720 Speaker 2: stays higher, they can't do anything about that. Point in essence, 346 00:18:03,359 --> 00:18:07,000 Speaker 2: here's my question from earlier. If we don't get a 347 00:18:07,200 --> 00:18:10,000 Speaker 2: cut this year, could that be seen as a de 348 00:18:10,119 --> 00:18:10,960 Speaker 2: facto hike. 349 00:18:12,560 --> 00:18:16,680 Speaker 11: Well, it's definitely a tighter policy than financial market participants 350 00:18:16,720 --> 00:18:18,800 Speaker 11: had anticipated. You know, at the start of the year. 351 00:18:18,800 --> 00:18:21,200 Speaker 11: I remember on this program in January we were talking 352 00:18:21,240 --> 00:18:23,320 Speaker 11: I think there was one hundred and fifty basis points 353 00:18:23,359 --> 00:18:26,520 Speaker 11: of rate cuts priced in that definitely had an impact 354 00:18:26,600 --> 00:18:28,520 Speaker 11: on financial conditions, whether you're looking at a two year 355 00:18:28,600 --> 00:18:31,040 Speaker 11: yield or a ten year yield. So the consequence of 356 00:18:31,119 --> 00:18:35,000 Speaker 11: the removal of those rate cuts is, yeah, tighter financial 357 00:18:35,040 --> 00:18:37,880 Speaker 11: conditions across the board. But you know, I just keep 358 00:18:37,920 --> 00:18:40,240 Speaker 11: coming back to it when talking to clients. It's happening 359 00:18:40,320 --> 00:18:42,879 Speaker 11: for a good reason. It's because growth is holding up. 360 00:18:42,920 --> 00:18:45,720 Speaker 11: The economy is more resilient. We're talking three percent growth. 361 00:18:46,480 --> 00:18:49,080 Speaker 11: That's not a terrible environment. I guess if we went 362 00:18:49,160 --> 00:18:52,320 Speaker 11: back I don't know, five, six, seven years, and I 363 00:18:52,440 --> 00:18:54,639 Speaker 11: told you we'd wake up in twenty twenty four with 364 00:18:54,760 --> 00:18:58,080 Speaker 11: three percent growth, three point eight percent unemployment rate, it's 365 00:18:58,119 --> 00:18:59,920 Speaker 11: a little bit higher. It's a three percent in place. 366 00:19:00,600 --> 00:19:02,840 Speaker 11: You would take that deal. I think it would be 367 00:19:02,960 --> 00:19:07,240 Speaker 11: okay for corporate earnings overall. So I don't know, it's 368 00:19:07,240 --> 00:19:10,840 Speaker 11: a disastrous scenario here. It's disappointing if you expected a 369 00:19:10,920 --> 00:19:13,720 Speaker 11: lot of rate cuts, which we did not, So not. 370 00:19:13,760 --> 00:19:15,159 Speaker 6: Too disappointed, Jeffrey. 371 00:19:15,200 --> 00:19:17,560 Speaker 3: How about the US consumer. We're gonna get some earnings 372 00:19:17,720 --> 00:19:20,399 Speaker 3: starting next week from some of the retailers. How do 373 00:19:20,400 --> 00:19:22,720 Speaker 3: you think the US consumers is doing out there because 374 00:19:22,760 --> 00:19:25,040 Speaker 3: there's boy, there's a lot of crosswinds out there. 375 00:19:25,080 --> 00:19:29,200 Speaker 6: It'seah tough, but certain parts are doing okay. How do 376 00:19:29,200 --> 00:19:29,960 Speaker 6: you view the consumer? 377 00:19:30,920 --> 00:19:32,600 Speaker 11: I think, you know, I talked to a little, you know, 378 00:19:32,640 --> 00:19:34,320 Speaker 11: a lot, a wide range of clients, and some of 379 00:19:34,359 --> 00:19:37,040 Speaker 11: my clients tell me, hey, I don't care that inflation 380 00:19:37,200 --> 00:19:40,359 Speaker 11: is cooled off. You know, Jeffrey's it was six percent 381 00:19:40,520 --> 00:19:42,960 Speaker 11: on this core measure you're talking about. Now it's three percent. 382 00:19:43,080 --> 00:19:46,479 Speaker 11: You know, big deal prices are still high, Paul, That's 383 00:19:46,520 --> 00:19:48,240 Speaker 11: what they tell me. It's the price level that I 384 00:19:48,280 --> 00:19:50,520 Speaker 11: think they're referring to. That's the term we would use, right, 385 00:19:51,040 --> 00:19:53,560 Speaker 11: and so that's still I think that's still weighing on 386 00:19:53,640 --> 00:19:55,800 Speaker 11: a lot of consumers. There are consumers that are seeing 387 00:19:55,840 --> 00:19:58,280 Speaker 11: pretty good wage gains, but not all and we think 388 00:19:58,480 --> 00:20:00,280 Speaker 11: you're seeing that show up in some areas. So we're 389 00:20:00,320 --> 00:20:02,720 Speaker 11: seeing that in credit card delinquencies, We're seeing that in 390 00:20:02,800 --> 00:20:05,560 Speaker 11: some of the auto delinquency numbers. So it's something more 391 00:20:05,680 --> 00:20:08,720 Speaker 11: watching very carefully. I have to tell you though, in 392 00:20:08,840 --> 00:20:13,960 Speaker 11: aggregate when I see aggregate nominal consumer income still growing 393 00:20:14,119 --> 00:20:16,879 Speaker 11: at around six percent year on year through the latest 394 00:20:16,880 --> 00:20:19,679 Speaker 11: month of data, that is pretty good that can smooth 395 00:20:19,720 --> 00:20:21,520 Speaker 11: over a lot of the other problems that we see 396 00:20:21,560 --> 00:20:21,840 Speaker 11: out there. 397 00:20:21,880 --> 00:20:23,560 Speaker 6: So some signs of. 398 00:20:23,600 --> 00:20:27,800 Speaker 11: Weakness, but overall, US can consumer is in still great shape. 399 00:20:27,840 --> 00:20:28,160 Speaker 10: I think. 400 00:20:28,320 --> 00:20:30,000 Speaker 2: So before we let you go, it is the question 401 00:20:30,280 --> 00:20:32,240 Speaker 2: jobs Day Friday, what are your numbers? 402 00:20:33,600 --> 00:20:36,359 Speaker 11: I think reasonable guest is somewhere around two hundred thousand. 403 00:20:36,400 --> 00:20:39,159 Speaker 11: Wouldn't be surprised by that, which would be great. We 404 00:20:39,440 --> 00:20:41,480 Speaker 11: think you only need one hundred hundred and ten thousand 405 00:20:41,560 --> 00:20:44,200 Speaker 11: jobs to keep a lid on the unemployment rates, so 406 00:20:44,280 --> 00:20:46,800 Speaker 11: that should keep some downward pressure on the unemployment rate. 407 00:20:47,080 --> 00:20:50,720 Speaker 11: Another great month of job growth, I think, so we're 408 00:20:50,760 --> 00:20:54,640 Speaker 11: expecting pretty solid growth to continue here in the April data. 409 00:20:55,640 --> 00:20:58,280 Speaker 2: All right, Jeffrey, thanks a lot. We appreciate it. I 410 00:20:58,400 --> 00:20:59,840 Speaker 2: hope for your sake that it is not an a 411 00:21:00,240 --> 00:21:03,280 Speaker 2: burger that you can get excited. It does feel like 412 00:21:03,440 --> 00:21:05,560 Speaker 2: Jay Powell would like it to be a nothing burger, 413 00:21:05,640 --> 00:21:08,240 Speaker 2: so we'll see if that actually happens. Jeffrey Cleveland, chief 414 00:21:08,240 --> 00:21:11,080 Speaker 2: economists at Payton Regal, is standing by. 415 00:21:12,720 --> 00:21:16,560 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 416 00:21:16,680 --> 00:21:20,200 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 417 00:21:20,240 --> 00:21:22,960 Speaker 1: Auto with the Bloomberg Business App. You can also listen 418 00:21:23,119 --> 00:21:26,200 Speaker 1: live on Amazon Alexa from our flagship New York station. 419 00:21:26,600 --> 00:21:29,320 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 420 00:21:30,760 --> 00:21:32,879 Speaker 3: Al Steele, Paul Sweeney, You're live here in our Bloomerg 421 00:21:32,920 --> 00:21:36,159 Speaker 3: Interactive Brokers studio or streaming live on YouTube as well 422 00:21:36,160 --> 00:21:37,960 Speaker 3: as you head over to YouTube dot com and search 423 00:21:38,080 --> 00:21:40,800 Speaker 3: Bloomberg Podcast and that's where you will find us. 424 00:21:40,840 --> 00:21:42,120 Speaker 6: Of course, it is FED Day today. 425 00:21:42,119 --> 00:21:44,560 Speaker 3: We'll hear from the feed of two pm Wall Street 426 00:21:44,600 --> 00:21:48,720 Speaker 3: Time conference with the reporters at two point thirty Bloomberg 427 00:21:48,720 --> 00:21:50,760 Speaker 3: Complete coverage on Bloomberg Radio and TV at one thirty 428 00:21:50,800 --> 00:21:53,200 Speaker 3: pm Wall Street Time. Just check in with somebody who 429 00:21:53,280 --> 00:21:55,359 Speaker 3: I think is going to be paying attention to this meeting. 430 00:21:55,680 --> 00:21:59,360 Speaker 3: Pria Misrab, Managing director at JP Morgan Asset Management, joining 431 00:21:59,440 --> 00:22:02,440 Speaker 3: us from New York City via a zoom Pria, thanks 432 00:22:02,440 --> 00:22:03,480 Speaker 3: so much for joining us here. 433 00:22:03,600 --> 00:22:04,640 Speaker 6: I guess what we've heard. 434 00:22:04,440 --> 00:22:06,080 Speaker 3: From a lot of people today that Alex and I 435 00:22:06,119 --> 00:22:09,080 Speaker 3: have been chatting with is the expectations pretty low here 436 00:22:09,160 --> 00:22:10,720 Speaker 3: that the Fed's are going to try to stay a 437 00:22:10,800 --> 00:22:14,760 Speaker 3: steady course here. Any chance that they maybe kind of 438 00:22:14,800 --> 00:22:16,840 Speaker 3: go off script a little bit and maybe be a 439 00:22:16,880 --> 00:22:19,359 Speaker 3: little bit more hawkish than maybe they had been. 440 00:22:20,960 --> 00:22:22,040 Speaker 12: So I think they have to. 441 00:22:22,119 --> 00:22:25,920 Speaker 9: Mark to market, meaning in January and March Chepau said 442 00:22:25,960 --> 00:22:27,840 Speaker 9: he'd like more confidence, or the FED would like more 443 00:22:27,880 --> 00:22:31,480 Speaker 9: confidence before they can cut trace they have or none 444 00:22:31,520 --> 00:22:33,639 Speaker 9: of the data should give them more confidence. 445 00:22:33,960 --> 00:22:35,440 Speaker 12: So I think they have to acknowledge it. 446 00:22:35,720 --> 00:22:38,600 Speaker 9: I would argue Chepau has already acknowledged that, I think 447 00:22:38,720 --> 00:22:41,960 Speaker 9: repeating that and keeping the market sort and the market's 448 00:22:41,960 --> 00:22:45,000 Speaker 9: already priced that in. We've taken down the number of 449 00:22:45,119 --> 00:22:47,800 Speaker 9: cuts that the market was pricing in for this year 450 00:22:48,240 --> 00:22:51,240 Speaker 9: to now about thirty basis points much later in the year, 451 00:22:51,600 --> 00:22:54,840 Speaker 9: so the market's already I think priced in a FED 452 00:22:55,000 --> 00:22:57,680 Speaker 9: that has should not have had more confidence to cut tries. 453 00:22:57,960 --> 00:23:02,000 Speaker 9: I think reiterating that it be relatively neutral for the market. 454 00:23:02,320 --> 00:23:05,080 Speaker 9: I think what I'm watching is does Chair Powel show 455 00:23:05,560 --> 00:23:07,800 Speaker 9: that he just we need more time, that the FED 456 00:23:07,880 --> 00:23:11,040 Speaker 9: needs more time to get that confidence, or is his 457 00:23:11,240 --> 00:23:15,040 Speaker 9: belief that the disinflation process is still underway. Is that 458 00:23:15,200 --> 00:23:18,200 Speaker 9: belief a little challenged or is he losing faith in that? 459 00:23:18,520 --> 00:23:21,159 Speaker 9: I think then you can see a much bigger reaction 460 00:23:21,280 --> 00:23:23,760 Speaker 9: because if the FED starts to get nervous that monetary 461 00:23:23,800 --> 00:23:26,760 Speaker 9: policy is not restrictive, hikes come back on the table, 462 00:23:27,200 --> 00:23:30,040 Speaker 9: and I think then no market is really priced for that. 463 00:23:30,280 --> 00:23:33,600 Speaker 9: I think risk assets will really struggle if the Fed 464 00:23:33,680 --> 00:23:35,880 Speaker 9: is document rate hikes. I don't think they're there yet, 465 00:23:36,280 --> 00:23:38,199 Speaker 9: but there's a press conference and I know he's going 466 00:23:38,280 --> 00:23:40,159 Speaker 9: to be asked that question, and if he sounds a 467 00:23:40,200 --> 00:23:43,840 Speaker 9: little more nervous about the hot inflation readings, I think 468 00:23:43,880 --> 00:23:45,719 Speaker 9: then the market's absolutely going to pay attention. 469 00:23:46,480 --> 00:23:49,680 Speaker 2: What is appropriately priced? Then if you're looking at a 470 00:23:49,760 --> 00:23:52,640 Speaker 2: ten year at four point sixty five percent, you're looking 471 00:23:52,680 --> 00:23:57,439 Speaker 2: at a two year above barely above five Are these 472 00:23:57,480 --> 00:23:59,080 Speaker 2: the right levels? What do you do here? 473 00:24:00,560 --> 00:24:03,880 Speaker 9: So I think if rate cuts are still on the horizon, 474 00:24:03,920 --> 00:24:05,760 Speaker 9: and they could be later this year, they could be 475 00:24:06,080 --> 00:24:09,320 Speaker 9: next year, I think the rates market's actually very well 476 00:24:09,400 --> 00:24:12,280 Speaker 9: priced for that. I would actually argue that at four 477 00:24:12,400 --> 00:24:14,960 Speaker 9: seventy on the tenure were near the peak if the 478 00:24:15,080 --> 00:24:17,080 Speaker 9: FED is not going to hike any further. 479 00:24:17,480 --> 00:24:18,560 Speaker 12: I actually think, owning some. 480 00:24:18,680 --> 00:24:21,520 Speaker 9: Duration, we've stepped in a little bit, were a little 481 00:24:21,560 --> 00:24:24,960 Speaker 9: long duration looking for levels to add to that, So 482 00:24:25,560 --> 00:24:27,359 Speaker 9: you know, I think rates then would be near the 483 00:24:27,440 --> 00:24:30,480 Speaker 9: peak if the FED suggests that they may be taking 484 00:24:30,680 --> 00:24:34,080 Speaker 9: rate cuts off the table or heaven forbid talking about 485 00:24:34,160 --> 00:24:37,280 Speaker 9: rate hikes. I think then absolutely rates can rise some more, 486 00:24:37,359 --> 00:24:40,600 Speaker 9: you can breach that five percent level. But as long 487 00:24:40,680 --> 00:24:43,600 Speaker 9: as they are dangling that rate cut garret in front 488 00:24:43,640 --> 00:24:45,600 Speaker 9: of the market, I think even if it's a little 489 00:24:45,640 --> 00:24:48,920 Speaker 9: further out, I think actually rates are start to look 490 00:24:49,119 --> 00:24:51,800 Speaker 9: fair to cheap. Look at all in eiels, in rest 491 00:24:51,920 --> 00:24:55,439 Speaker 9: grate corporate you're getting six percent, securitized credit you can 492 00:24:55,520 --> 00:24:58,120 Speaker 9: get seven eight percent. I mean you're looking at equity 493 00:24:58,280 --> 00:25:01,840 Speaker 9: like returns in fixed and so as long as we're 494 00:25:01,880 --> 00:25:04,119 Speaker 9: not talking about rate hikes and cuts are still on 495 00:25:04,200 --> 00:25:06,040 Speaker 9: the horizon, I think fixed income makes sense. 496 00:25:06,359 --> 00:25:08,800 Speaker 12: Just have to be careful, you know what risk you're 497 00:25:08,840 --> 00:25:11,840 Speaker 12: taking in terms of credit. But you know, I think 498 00:25:12,560 --> 00:25:14,760 Speaker 12: rates should be near their peak, and. 499 00:25:14,800 --> 00:25:15,680 Speaker 6: That's kind of where I want to go. 500 00:25:15,760 --> 00:25:18,159 Speaker 3: Pre I was just wondering when you know, pros like you, 501 00:25:20,080 --> 00:25:22,560 Speaker 3: when you start thinking about credit risk and maybe taking 502 00:25:22,600 --> 00:25:23,720 Speaker 3: on more credit risk. 503 00:25:23,720 --> 00:25:24,240 Speaker 6: Because I think. 504 00:25:24,119 --> 00:25:26,240 Speaker 3: About the performance in the fixed income space in twenty 505 00:25:26,280 --> 00:25:29,600 Speaker 3: twenty three, against at least my expectations, the best performing 506 00:25:29,600 --> 00:25:31,639 Speaker 3: asset class was US high yield. 507 00:25:32,160 --> 00:25:34,560 Speaker 6: So I'm wondering if I should be taken some credit 508 00:25:34,680 --> 00:25:35,040 Speaker 6: risk here. 509 00:25:36,160 --> 00:25:38,880 Speaker 9: Sure, we've been adding well, we've been adding credit risks 510 00:25:38,960 --> 00:25:42,800 Speaker 9: really since late last year, once the FED suggested that 511 00:25:43,040 --> 00:25:45,960 Speaker 9: they were done hiking. That's normally a good sign for 512 00:25:47,280 --> 00:25:50,080 Speaker 9: risk assets as well as duration, as long as the 513 00:25:50,119 --> 00:25:52,080 Speaker 9: fundamentals are strong. And that's what I think if you 514 00:25:52,160 --> 00:25:55,960 Speaker 9: rely on research, we have a ton of research analysts looking. 515 00:25:55,800 --> 00:25:57,000 Speaker 12: At fundamentals of the company. 516 00:25:57,040 --> 00:26:00,280 Speaker 9: You talk about high yield, the company fundamentals are high 517 00:26:00,320 --> 00:26:02,520 Speaker 9: yield of investment grade are very strong. 518 00:26:02,800 --> 00:26:04,520 Speaker 12: I mean there are those companies. 519 00:26:04,119 --> 00:26:07,080 Speaker 9: That are struggling but being extremely careful about the business model, 520 00:26:07,119 --> 00:26:10,560 Speaker 9: about the balance sheet of you know, even high yield. 521 00:26:10,600 --> 00:26:13,080 Speaker 9: I think high quality, high heel makes sense. We've been 522 00:26:13,160 --> 00:26:16,440 Speaker 9: adding that risk. I think the other thing we watch 523 00:26:16,520 --> 00:26:21,400 Speaker 9: our flows, and we've had significant inflows into fixed income nets. 524 00:26:21,440 --> 00:26:24,359 Speaker 9: Supply or fixed income has not been that high. I mean, 525 00:26:24,400 --> 00:26:27,960 Speaker 9: companies have been issuing paper, but really to refinance their debt, 526 00:26:28,040 --> 00:26:31,000 Speaker 9: that their upcoming debt. We haven't seen the releveraging up 527 00:26:31,080 --> 00:26:33,000 Speaker 9: of the corporate sector. It's something I'm keeping an eye 528 00:26:33,040 --> 00:26:36,480 Speaker 9: out for because spreads are tight. If companies start to 529 00:26:36,560 --> 00:26:38,520 Speaker 9: re level, I get a little more nervous. But you 530 00:26:38,560 --> 00:26:41,320 Speaker 9: look at the supply demand picture for high yield, for 531 00:26:41,480 --> 00:26:45,560 Speaker 9: investment rate corporate, it's strong. Company fundamentals are strong. That 532 00:26:45,600 --> 00:26:47,360 Speaker 9: would be an argument for as long as the soft 533 00:26:47,480 --> 00:26:51,520 Speaker 9: landing continues, economic data remains strong, the consumer is strong. 534 00:26:51,880 --> 00:26:55,640 Speaker 9: I think owning some credit risks, you know, it makes sense. 535 00:26:55,760 --> 00:26:58,479 Speaker 9: Owning some duration risks closer to that four to seventy 536 00:26:58,560 --> 00:27:01,240 Speaker 9: five percent level to make sense as well. So I 537 00:27:01,320 --> 00:27:04,400 Speaker 9: think both of those risks are are attractive. 538 00:27:04,440 --> 00:27:04,600 Speaker 12: Here. 539 00:27:05,240 --> 00:27:08,159 Speaker 3: One of our YouTube viewers just kind of wrote in 540 00:27:08,200 --> 00:27:11,159 Speaker 3: and said, is that the Empire State building out your window? 541 00:27:11,240 --> 00:27:14,440 Speaker 3: Or is that like a screen saver kind of zoom thing. 542 00:27:16,160 --> 00:27:19,720 Speaker 12: Well, right now, it is a screen saver, but no, 543 00:27:20,119 --> 00:27:21,000 Speaker 12: I thought it was real. 544 00:27:22,040 --> 00:27:25,040 Speaker 9: Once the JP Morgan building is up, I'm hoping probably 545 00:27:25,119 --> 00:27:27,240 Speaker 9: not from my office. I sit there at screens all 546 00:27:27,320 --> 00:27:30,119 Speaker 9: day long, but I'm sure there will be views from them. 547 00:27:30,160 --> 00:27:31,200 Speaker 6: You're gonna get some great views. 548 00:27:31,240 --> 00:27:33,000 Speaker 3: And by the way, we're gonna do a remote broadcast 549 00:27:33,080 --> 00:27:35,639 Speaker 3: from down there when that building opens. 550 00:27:35,920 --> 00:27:39,399 Speaker 2: Oh that's exciting. Yes, okay, cool, all right, brio. What 551 00:27:40,240 --> 00:27:43,080 Speaker 2: if you take into account you mentioned sort of taking 552 00:27:43,160 --> 00:27:46,400 Speaker 2: on the credit risk, et cetera. How do we think 553 00:27:46,440 --> 00:27:48,680 Speaker 2: about all the supply that's going to come on in 554 00:27:48,800 --> 00:27:51,520 Speaker 2: terms of where you may take duration, where risk, where 555 00:27:51,600 --> 00:27:53,960 Speaker 2: the credit risk then lies. And I say supply, and 556 00:27:54,000 --> 00:27:56,360 Speaker 2: I mean from treasury, but also in terms of issuance 557 00:27:56,440 --> 00:27:57,320 Speaker 2: on the corporate side. 558 00:27:58,720 --> 00:28:00,920 Speaker 12: Sure, so a lot of issuance has happened. 559 00:28:00,960 --> 00:28:04,440 Speaker 9: I think there's been significant pre funding earlier this year, 560 00:28:04,520 --> 00:28:06,600 Speaker 9: So we are looking for less corporate supply on a 561 00:28:06,680 --> 00:28:09,400 Speaker 9: growth basis into year end, particularly as we go into 562 00:28:09,440 --> 00:28:11,800 Speaker 9: the election. But I think as we look at the 563 00:28:11,920 --> 00:28:14,000 Speaker 9: spread curve, and I'll get to the rate curve in 564 00:28:14,000 --> 00:28:17,240 Speaker 9: a minute, but the spread curve is pretty flat. So 565 00:28:17,400 --> 00:28:19,600 Speaker 9: we like owning the zero to five year part of 566 00:28:19,680 --> 00:28:22,440 Speaker 9: the spread curve just because you know, to take on 567 00:28:22,640 --> 00:28:25,640 Speaker 9: more additional credit risks, you know, just not getting paid 568 00:28:25,720 --> 00:28:28,480 Speaker 9: up enough. So you know, if the spread curve steepens, 569 00:28:28,480 --> 00:28:30,000 Speaker 9: I might look further out, but I would say zero 570 00:28:30,040 --> 00:28:32,320 Speaker 9: to five year when we talk about the treasury curve, 571 00:28:32,440 --> 00:28:35,080 Speaker 9: and that's why we have a lot of supply and 572 00:28:35,200 --> 00:28:37,359 Speaker 9: there's no pre funding. There's going to be treasury supply 573 00:28:38,360 --> 00:28:40,720 Speaker 9: as far as the eye can see for multiple generations. 574 00:28:40,760 --> 00:28:44,080 Speaker 9: Given our deficit outlook, I think there it's important to 575 00:28:44,160 --> 00:28:45,920 Speaker 9: think about what does the FED do? 576 00:28:46,160 --> 00:28:46,960 Speaker 12: And given our. 577 00:28:46,960 --> 00:28:49,360 Speaker 9: View that the FED is likely to start to cut rates, 578 00:28:49,400 --> 00:28:51,640 Speaker 9: we think in the third quarter, a couple of times 579 00:28:51,720 --> 00:28:54,000 Speaker 9: this year, a few more times next year. I think 580 00:28:54,040 --> 00:28:57,200 Speaker 9: that zero to five year is attractive, But given that 581 00:28:57,320 --> 00:29:00,400 Speaker 9: the cuts don't seem to be imminent, I think the five, 582 00:29:00,480 --> 00:29:02,960 Speaker 9: the three and five year, it's a little more attractive 583 00:29:03,000 --> 00:29:05,520 Speaker 9: because you know, the negative carry of owning that two 584 00:29:05,600 --> 00:29:08,959 Speaker 9: year is high. So I would say owning five year 585 00:29:09,080 --> 00:29:12,480 Speaker 9: duration and zero to five year credit, that's really I 586 00:29:12,520 --> 00:29:15,040 Speaker 9: think the sweet spot in the fixed income space right now. 587 00:29:15,440 --> 00:29:17,400 Speaker 3: All right, let me bring up an old issue here PRIA. 588 00:29:17,720 --> 00:29:20,200 Speaker 3: That's the inverted yield curve. We're still inverted two tens 589 00:29:20,240 --> 00:29:22,840 Speaker 3: thirty five basis points. And I was taught by none 590 00:29:22,880 --> 00:29:25,400 Speaker 3: of the professor cam Harvey who kind of penned this 591 00:29:25,480 --> 00:29:29,120 Speaker 3: whole thing that that usually leads to, like always a recession. 592 00:29:29,840 --> 00:29:31,240 Speaker 3: What's going on there with that yield curve? 593 00:29:32,400 --> 00:29:36,040 Speaker 9: So the FED has historically struggled to engineer a soft landing. 594 00:29:36,960 --> 00:29:40,520 Speaker 9: They did so in ninety five. I think twenty nineteen 595 00:29:40,640 --> 00:29:43,280 Speaker 9: might have been another case, except we had COVID, so 596 00:29:43,360 --> 00:29:47,360 Speaker 9: it's really not really a tested period. But here's why 597 00:29:47,640 --> 00:29:49,400 Speaker 9: people look at the eyelk curve and say that that's 598 00:29:49,440 --> 00:29:51,959 Speaker 9: a sign of a recession, because it's typically end of cycle. 599 00:29:52,360 --> 00:29:55,600 Speaker 9: The FED has tightened policy significantly, and then we head 600 00:29:55,640 --> 00:29:58,040 Speaker 9: into a recession and the Fed then tries to cut traits. 601 00:29:57,800 --> 00:29:59,120 Speaker 12: To down to that. 602 00:30:00,000 --> 00:30:03,440 Speaker 9: I think they're trying very, very hard to keep the 603 00:30:03,520 --> 00:30:06,040 Speaker 9: soft landing going. And that's why the talk of rate cuts. 604 00:30:06,040 --> 00:30:06,640 Speaker 12: I think they want to. 605 00:30:06,640 --> 00:30:10,320 Speaker 9: Take the edge off the market. Start cutting rates. If 606 00:30:10,360 --> 00:30:12,640 Speaker 9: the earlier they start, the slower they can cut in, 607 00:30:13,080 --> 00:30:16,840 Speaker 9: perhaps that narrow path to soft landing widens out a 608 00:30:16,880 --> 00:30:19,280 Speaker 9: little bit. I think that's why the Fed has been 609 00:30:19,360 --> 00:30:21,720 Speaker 9: preemptive in talking about rate cuts. They're looking at their 610 00:30:21,800 --> 00:30:24,479 Speaker 9: progress and inflation and saying, as long as we get 611 00:30:24,520 --> 00:30:26,680 Speaker 9: a little bit more confidence, we can cut rates. So 612 00:30:27,000 --> 00:30:29,400 Speaker 9: even though the inverted curve might imply a recession, I 613 00:30:29,560 --> 00:30:33,920 Speaker 9: think if and it's a big if, inflation stabilizes or 614 00:30:34,280 --> 00:30:37,800 Speaker 9: goes back bumpy road but goes back into disinflation and 615 00:30:37,880 --> 00:30:40,240 Speaker 9: the Fed starts to cut rates a little bit, they're 616 00:30:40,240 --> 00:30:43,720 Speaker 9: going to ease financial conditions enough to keep growth going. 617 00:30:43,800 --> 00:30:45,920 Speaker 9: And I think then that path you can get that 618 00:30:46,040 --> 00:30:48,240 Speaker 9: soft landing even in an inverted curve. 619 00:30:48,360 --> 00:30:50,600 Speaker 2: All right, we appreciate it. Thank you very much. Good 620 00:30:50,680 --> 00:30:53,479 Speaker 2: luck with the view. Priam Israel Fixing Come Portfolio Manager, 621 00:30:53,600 --> 00:30:56,120 Speaker 2: JP Morgan Asset Management is standing byer. 622 00:30:58,600 --> 00:31:02,440 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 623 00:31:02,560 --> 00:31:06,080 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 624 00:31:06,120 --> 00:31:08,840 Speaker 1: Auto with a Bloomberg Business Act. You can also listen 625 00:31:09,000 --> 00:31:12,080 Speaker 1: live on Amazon Alexa from our flagship New York station 626 00:31:12,480 --> 00:31:15,200 Speaker 1: just say Alexa playing Bloomberg eleven thirty. 627 00:31:16,480 --> 00:31:19,520 Speaker 2: This is Bloomberg Intelligence Radio. We cover all the news 628 00:31:19,680 --> 00:31:23,480 Speaker 2: in economic and financial world with our top analyst over 629 00:31:23,560 --> 00:31:26,320 Speaker 2: at Bloomberg Intelligence. They cover two thousand companies one hundred 630 00:31:26,320 --> 00:31:28,840 Speaker 2: and thirty industries around the world. They're honestly probably the 631 00:31:28,880 --> 00:31:32,320 Speaker 2: smartest people that we talked to in this business. Ana 632 00:31:32,400 --> 00:31:35,480 Speaker 2: Ragrana is one of them. He's Bloomberg Intelligence Technology senior 633 00:31:35,520 --> 00:31:38,600 Speaker 2: technology analysts. And we're talking Amazon. So that's stock up 634 00:31:39,120 --> 00:31:41,520 Speaker 2: doing pretty well. It is up by about three point 635 00:31:41,520 --> 00:31:44,040 Speaker 2: three percent, having a nice surge yesterday when reported after 636 00:31:44,040 --> 00:31:46,720 Speaker 2: the closing bell, and it was all because of cloud 637 00:31:46,880 --> 00:31:50,800 Speaker 2: sales growth and AI demand. Anurag, what was your big 638 00:31:50,920 --> 00:31:52,520 Speaker 2: takeaway from yesterday and the call. 639 00:31:53,840 --> 00:31:54,040 Speaker 10: Yeah. 640 00:31:54,040 --> 00:31:56,640 Speaker 13: I think the big spike in AWS profit is something 641 00:31:56,680 --> 00:31:59,240 Speaker 13: that really alarmed us because you know, that was a 642 00:31:59,360 --> 00:32:02,240 Speaker 13: number we weren't expecting for I honestly a few years. 643 00:32:02,600 --> 00:32:05,920 Speaker 13: So if you look at it, AWS margins, operating margins 644 00:32:06,000 --> 00:32:08,760 Speaker 13: came close to thirty seven thirty eight percent, a little 645 00:32:08,800 --> 00:32:11,800 Speaker 13: over thirty seven, and that was like eight points or 646 00:32:11,840 --> 00:32:14,440 Speaker 13: eight percentage points higher than what Street was looking for 647 00:32:14,960 --> 00:32:17,400 Speaker 13: and fourteen percentage points over last year. 648 00:32:17,920 --> 00:32:19,040 Speaker 10: Absolutely phenomenal. 649 00:32:19,120 --> 00:32:22,120 Speaker 13: I think that's really what I am hoping that you know, 650 00:32:22,200 --> 00:32:24,640 Speaker 13: investors are focused on rather than all the other things. 651 00:32:25,120 --> 00:32:27,040 Speaker 3: All right ONNROD, give us a sense if we just 652 00:32:27,080 --> 00:32:31,000 Speaker 3: step back for those those that aren't cloud efficionados, give 653 00:32:31,080 --> 00:32:32,960 Speaker 3: us kind of the market share layout. How does this 654 00:32:33,080 --> 00:32:35,760 Speaker 3: market look between some of these big players like Microsoft 655 00:32:35,880 --> 00:32:36,840 Speaker 3: and Google and Amazon. 656 00:32:37,880 --> 00:32:40,600 Speaker 13: So Amazon only plays on the infrastructure layer, which is 657 00:32:40,920 --> 00:32:43,720 Speaker 13: trying to give people raw material to build their applications, 658 00:32:44,160 --> 00:32:46,840 Speaker 13: and when that they have a commanding market share over 659 00:32:46,960 --> 00:32:49,920 Speaker 13: forty percent of the market, and in fact that they 660 00:32:49,960 --> 00:32:51,600 Speaker 13: have maintained that for a while, I mean, which is 661 00:32:51,640 --> 00:32:54,920 Speaker 13: surprising because Microsoft has been gaining share on it, you know, 662 00:32:55,080 --> 00:32:58,160 Speaker 13: for a very long period of time. But from smaller players, 663 00:32:58,200 --> 00:33:01,240 Speaker 13: and also the market's growing very much. So Amazon's currently 664 00:33:01,320 --> 00:33:03,800 Speaker 13: at you know, revenue off over one hundred billion dollars 665 00:33:03,880 --> 00:33:06,600 Speaker 13: in this market, but over to all tech spending is 666 00:33:06,720 --> 00:33:09,000 Speaker 13: you know, north of two trillion, frankly, So there's a 667 00:33:09,200 --> 00:33:12,080 Speaker 13: lot of room to grow for everybody, not just Amazon, 668 00:33:12,200 --> 00:33:15,680 Speaker 13: but Amazon, Microsoft, Google, you know, even Oracle, I mean, 669 00:33:15,680 --> 00:33:17,320 Speaker 13: all of them will grow in this market. 670 00:33:18,000 --> 00:33:20,000 Speaker 2: So if we take a look at the different layers 671 00:33:20,240 --> 00:33:24,480 Speaker 2: of how AI kind of plays in too cloud, the 672 00:33:24,600 --> 00:33:28,720 Speaker 2: one area where Amazon maybe isn't getting as much market 673 00:33:28,800 --> 00:33:31,280 Speaker 2: share and maybe they're still developing that is the consumer 674 00:33:31,400 --> 00:33:34,800 Speaker 2: facing side. What can they do there? What is their 675 00:33:34,840 --> 00:33:35,960 Speaker 2: growth opportunity there? 676 00:33:37,200 --> 00:33:39,040 Speaker 13: Yeah, I mean they have a lot of you know, 677 00:33:39,120 --> 00:33:41,200 Speaker 13: I would say some apps that are working on it. 678 00:33:41,280 --> 00:33:44,200 Speaker 13: But really the reason why Microsoft is ahead right now 679 00:33:44,360 --> 00:33:46,840 Speaker 13: in that game is because of open Ai. They have 680 00:33:46,960 --> 00:33:49,560 Speaker 13: a partnership with open ai and they run open AI's 681 00:33:49,640 --> 00:33:51,640 Speaker 13: back end, which is when you do a search and 682 00:33:51,760 --> 00:33:54,800 Speaker 13: chat GPT, Microsoft is running those searchers in the background 683 00:33:55,560 --> 00:33:58,000 Speaker 13: or you know, the application runs on it, which is 684 00:33:58,040 --> 00:34:01,160 Speaker 13: why Microsoft is getting the benefit of it. For AWS, 685 00:34:01,240 --> 00:34:03,640 Speaker 13: the big benefit is going to come from companies or 686 00:34:03,720 --> 00:34:06,880 Speaker 13: big corporations when they go out and build their AI applications, 687 00:34:07,280 --> 00:34:10,200 Speaker 13: there's a high likelihood they're going to choose AWS as 688 00:34:10,280 --> 00:34:12,640 Speaker 13: much as they're going to choose Microsoft or Google. And 689 00:34:12,760 --> 00:34:14,520 Speaker 13: that's really what Amazon's betting on. 690 00:34:16,040 --> 00:34:20,160 Speaker 3: So you mentioned the margins, high margins at AWS. Can 691 00:34:20,200 --> 00:34:22,880 Speaker 3: they maintain those margins? What are the risks for those margins? 692 00:34:23,560 --> 00:34:25,520 Speaker 13: Yeah, I don't think they can maintain them, only because 693 00:34:25,520 --> 00:34:27,480 Speaker 13: they have to spend a fair amount of money in 694 00:34:27,640 --> 00:34:32,520 Speaker 13: order to reduce in order to fulfill the demand expanding 695 00:34:32,600 --> 00:34:35,839 Speaker 13: in data centers, buying new hardware, buying chips. So I'd 696 00:34:35,920 --> 00:34:38,160 Speaker 13: be very surprised if you see that number again for 697 00:34:38,280 --> 00:34:40,680 Speaker 13: a very long period of time. You know, frankly speaking, 698 00:34:40,719 --> 00:34:42,800 Speaker 13: I'll be happy with the thirty percent margin for the 699 00:34:42,880 --> 00:34:45,359 Speaker 13: next several years while they make sure that they're doing 700 00:34:45,400 --> 00:34:48,880 Speaker 13: the right investments to drive double digit growth rate on 701 00:34:48,960 --> 00:34:49,560 Speaker 13: their top line. 702 00:34:49,719 --> 00:34:51,680 Speaker 2: Let's talk about those investments. So they said they're going 703 00:34:51,719 --> 00:34:55,200 Speaker 2: to quote meaningfully step up their capex to pay for 704 00:34:55,280 --> 00:34:57,720 Speaker 2: all this AI infrastructure. But there was no like number 705 00:34:57,760 --> 00:35:00,640 Speaker 2: given when Meta said that market didn't like it. What 706 00:35:01,239 --> 00:35:03,480 Speaker 2: was the pass here that Amazon got? 707 00:35:04,400 --> 00:35:07,440 Speaker 13: Yeah, but you know, Amazon's basically showcasing that they actually 708 00:35:07,520 --> 00:35:10,439 Speaker 13: have been doing this successfully in terms of expanding data 709 00:35:10,520 --> 00:35:13,880 Speaker 13: centers based on the capacity, so you know, before going in, 710 00:35:14,480 --> 00:35:17,400 Speaker 13: you know, they had close to fifteen billion dollars yesterday 711 00:35:18,080 --> 00:35:20,120 Speaker 13: in the in the first quarter in terms of capex, 712 00:35:20,400 --> 00:35:23,080 Speaker 13: and it's going to go up over the next you 713 00:35:23,120 --> 00:35:25,000 Speaker 13: know quarter, So we think it's going to be north 714 00:35:25,000 --> 00:35:28,120 Speaker 13: of sixty five billion at this point for all of Amazon, 715 00:35:28,239 --> 00:35:29,879 Speaker 13: with most of it going to AWS. 716 00:35:30,440 --> 00:35:31,440 Speaker 10: But there's a reason for it. 717 00:35:31,640 --> 00:35:35,480 Speaker 13: They are getting contracts to fulfill cloud demand or you know, 718 00:35:35,600 --> 00:35:38,320 Speaker 13: they need to be able to expand that to fulfill 719 00:35:38,400 --> 00:35:40,799 Speaker 13: that massive cloud demand on a rock. 720 00:35:40,800 --> 00:35:42,200 Speaker 6: You know what I did not see yesterday and I 721 00:35:42,239 --> 00:35:45,000 Speaker 6: released a dividend. What's up with that? They got like 722 00:35:45,080 --> 00:35:47,000 Speaker 6: sixty to eighty billion dollars of free cash flow? 723 00:35:47,960 --> 00:35:49,840 Speaker 13: Yeah, I mean I I you know again, they're going 724 00:35:49,920 --> 00:35:52,279 Speaker 13: to spend that sixty five billion dollars next year on 725 00:35:52,360 --> 00:35:55,800 Speaker 13: capex also, so I'm okay with not having a dividend 726 00:35:55,840 --> 00:35:56,239 Speaker 13: for a while. 727 00:35:56,280 --> 00:35:58,719 Speaker 3: I would rather you're a technicals you guys think that 728 00:35:58,800 --> 00:36:01,400 Speaker 3: if you if you put out a dividend, it's signals 729 00:36:01,440 --> 00:36:02,640 Speaker 3: that you're no longer a growth story. 730 00:36:03,200 --> 00:36:05,440 Speaker 10: Yeah, it's a kiss of death. I'm not a big fan. 731 00:36:05,880 --> 00:36:08,800 Speaker 2: No, Microsoft, Google, Apple, they disagree with you. 732 00:36:10,800 --> 00:36:13,120 Speaker 10: Yeah, IBM kind of agrees with me at this. 733 00:36:13,200 --> 00:36:17,000 Speaker 2: Point that I mean, so, but you know, yeah, go ahead. 734 00:36:17,200 --> 00:36:19,440 Speaker 13: Yeah, So look at IBM. I mean, they have a 735 00:36:19,560 --> 00:36:22,359 Speaker 13: massive dividend yield. I would rather they, you know, they 736 00:36:22,440 --> 00:36:24,760 Speaker 13: take that money and buy a bunch of new Hashi 737 00:36:24,800 --> 00:36:27,160 Speaker 13: corpse kind of companies that are growing at fifteen to 738 00:36:27,239 --> 00:36:29,600 Speaker 13: twenty percent. That will change the face of the company, 739 00:36:29,719 --> 00:36:31,640 Speaker 13: make them, you know, even more relevant in the tech 740 00:36:31,680 --> 00:36:34,480 Speaker 13: space than they are right now. So I'm always in 741 00:36:34,560 --> 00:36:36,520 Speaker 13: that camp that when you are a tech company, you 742 00:36:36,760 --> 00:36:40,200 Speaker 13: gotta constantly reinvent yourself otherwise somebody will come and eat 743 00:36:40,200 --> 00:36:40,560 Speaker 13: your lunch. 744 00:36:40,600 --> 00:36:42,800 Speaker 3: I mean, on Rock and I, we just fundamentally disagree 745 00:36:42,840 --> 00:36:43,000 Speaker 3: on this. 746 00:36:43,160 --> 00:36:45,200 Speaker 6: We agree to disagree. We go to our separate corners. 747 00:36:45,280 --> 00:36:47,040 Speaker 2: Can I ask a dumb question for the two of you, then, 748 00:36:47,160 --> 00:36:48,759 Speaker 2: is there room for both of you to be right? Like, 749 00:36:49,040 --> 00:36:51,279 Speaker 2: can these tech companies throw off enough cash they can 750 00:36:51,360 --> 00:36:53,720 Speaker 2: reinvest in a healthy way and also pay a dividend? 751 00:36:53,960 --> 00:36:57,640 Speaker 13: Yes on our own, Yes, yes, absolutely, Alex, I completely 752 00:36:57,680 --> 00:36:59,719 Speaker 13: agree with that, because what happens is if you go 753 00:37:00,280 --> 00:37:03,640 Speaker 13: very small token dividend. It opens the doors to a 754 00:37:03,719 --> 00:37:07,520 Speaker 13: lot of institutional investors that are bound by their charter 755 00:37:07,680 --> 00:37:10,080 Speaker 13: to only invest in companies that they are dividend. So 756 00:37:10,200 --> 00:37:12,600 Speaker 13: there is a logical reason to do it. But I'm 757 00:37:12,640 --> 00:37:14,520 Speaker 13: okay with Amazon's going to take a year or two 758 00:37:14,600 --> 00:37:15,319 Speaker 13: years to get to that. 759 00:37:15,400 --> 00:37:16,520 Speaker 10: Path, all right. 760 00:37:16,560 --> 00:37:17,879 Speaker 2: So there's are where where you can both be read. 761 00:37:18,680 --> 00:37:19,920 Speaker 6: There's there's a place where we can meet them. 762 00:37:20,440 --> 00:37:23,200 Speaker 2: Is there a CAPEX number that you wouldn't like from Amazon? 763 00:37:23,400 --> 00:37:24,719 Speaker 2: They didn't give a number. 764 00:37:25,200 --> 00:37:27,640 Speaker 10: Now, not at this point. The only reason is because 765 00:37:27,680 --> 00:37:28,920 Speaker 10: we see forward contracts. 766 00:37:29,239 --> 00:37:31,040 Speaker 13: As of this morning, when they filed their ten Q, 767 00:37:31,239 --> 00:37:33,720 Speaker 13: we saw cloud commitments go up twenty nine percent. 768 00:37:34,000 --> 00:37:35,359 Speaker 10: I mean that's a very big number. 769 00:37:35,440 --> 00:37:38,839 Speaker 13: And frankly, when on the enterprise side, we haven't even 770 00:37:38,920 --> 00:37:42,120 Speaker 13: seen orders coming for AI at this point. AI orders 771 00:37:42,160 --> 00:37:45,120 Speaker 13: are only coming in from consumer applications like chat, GBT, 772 00:37:45,440 --> 00:37:48,239 Speaker 13: people running that. At this point, over the next few years, 773 00:37:48,320 --> 00:37:50,960 Speaker 13: we should see a massive spike in you know, people 774 00:37:51,280 --> 00:37:55,560 Speaker 13: creating new applications or companies creating new applications, and that's 775 00:37:55,640 --> 00:37:59,240 Speaker 13: going to only drive more growth for AWS, Microsoft and Google. 776 00:38:00,239 --> 00:38:03,640 Speaker 3: I just punched in Microsoft here. I'm surprised that the 777 00:38:03,680 --> 00:38:06,000 Speaker 3: stock's only up five percent year to date. I thought 778 00:38:06,000 --> 00:38:08,000 Speaker 3: it would have been more. Just seems like everything's going 779 00:38:08,040 --> 00:38:09,560 Speaker 3: their way. What's the Microsoft call here? 780 00:38:10,320 --> 00:38:12,200 Speaker 13: Yeah, if you go and look at all these big 781 00:38:12,280 --> 00:38:14,880 Speaker 13: companies that are supposed to be the big beneficiaries of 782 00:38:14,920 --> 00:38:17,480 Speaker 13: AA in the long run, they had a phenomenal last year. 783 00:38:17,560 --> 00:38:19,279 Speaker 13: I mean, it's just you just can't deny it that 784 00:38:19,400 --> 00:38:22,319 Speaker 13: the last you know, eighteen months have been really good 785 00:38:22,400 --> 00:38:25,160 Speaker 13: for the entire tech space, whether it's Microsoft or in 786 00:38:25,320 --> 00:38:28,440 Speaker 13: video or you know, Amazon. So I think there's just 787 00:38:28,760 --> 00:38:31,759 Speaker 13: that digestion phase at this point to see how things 788 00:38:31,880 --> 00:38:34,520 Speaker 13: end up. There's an election coming, the interest rates are 789 00:38:34,560 --> 00:38:37,719 Speaker 13: going up, so there is a fair amount of unsididity 790 00:38:37,800 --> 00:38:40,320 Speaker 13: out there that how will demand shape up the in 791 00:38:40,400 --> 00:38:41,160 Speaker 13: the second half. 792 00:38:41,040 --> 00:38:41,600 Speaker 10: And next year. 793 00:38:41,760 --> 00:38:45,359 Speaker 2: Okay, we have like thirty seconds left Apple tomorrow, what's 794 00:38:45,360 --> 00:38:46,080 Speaker 2: your number one thing? 795 00:38:46,200 --> 00:38:47,319 Speaker 10: Good course? Yeah. 796 00:38:47,440 --> 00:38:50,480 Speaker 13: The only things I want to hear is China and stabilization, 797 00:38:50,640 --> 00:38:52,880 Speaker 13: and then I'll be sleeping happily. I mean, other than that, 798 00:38:53,000 --> 00:38:55,000 Speaker 13: it's going to be a bad number for Apple. 799 00:38:55,160 --> 00:38:57,319 Speaker 2: Are we going to get that? China and stable is right? 800 00:38:57,640 --> 00:39:00,919 Speaker 3: We're going to get a disappointing number Apple, But again 801 00:39:00,960 --> 00:39:03,560 Speaker 3: its honor. It's just saying it's all about China, right. 802 00:39:03,520 --> 00:39:07,279 Speaker 2: But also can you stabilize versus increase? I guess would 803 00:39:07,280 --> 00:39:10,040 Speaker 2: be the distinction. Hey, on our great stuff. We appreciate you. 804 00:39:10,120 --> 00:39:11,799 Speaker 2: I am sure we'll be talking to you tomorrow as well. 805 00:39:11,840 --> 00:39:15,440 Speaker 2: On a rag Rana Bloomberg Intelligence, a tech senior technology 806 00:39:15,440 --> 00:39:17,680 Speaker 2: analyst joining us on Amazon as well as Apple. Do 807 00:39:17,719 --> 00:39:21,480 Speaker 2: you think if they have, like China, not growing but flat, 808 00:39:21,680 --> 00:39:22,480 Speaker 2: that would be goodness? 809 00:39:22,680 --> 00:39:25,320 Speaker 3: I think if I were an investor, I would be 810 00:39:25,360 --> 00:39:28,520 Speaker 3: happy that because my concern is it's a secular declining 811 00:39:28,680 --> 00:39:31,279 Speaker 3: market simply because they're losing market share. 812 00:39:31,560 --> 00:39:32,759 Speaker 2: Yeah, all right, good point. 813 00:39:33,160 --> 00:39:37,680 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify, 814 00:39:37,880 --> 00:39:40,759 Speaker 1: and anywhere else you will get your podcasts. 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